More Small Banks Joining FHLB Mortgage Purchase Program
The Federal Home Loan Bank of Cincinnati is experiencing increased membership participation in its Mortgage Purchase Program as well as higher loan deliveries.
In its 3Q financial report, the FHLB said it purchased $1.9 billion of single-family loans from member institutions (banks and thrifts) during the first nine months of the year, up from $1.3 billion in the same period a year ago.
The Cincinnati district bank purchased $2 billion of "mortgage purchase" loans in 2011 and ended the calendar year with 71 MPP members.
The regional GSE currently has 83 MPP members, which is an “all-time high” for the bank, according to the FHLB’s president and chief executive Andrew Howell.
In a recent letter to members, Howell noted that MPP offers members a competitive alternative to the secondary mortgage market (Fannie Mae and Freddie Mac) and another 20 members are seeking to join the program.
The president’s letter also includes a quote from Joe Castlen, assistant vice president for MPP: “Participation has really increased. We believe our pricing is very competitive, and our members agree.”
Fannie Mae and Freddie Mac have raised their guarantee fees 20% basis points over the past year.
Despite the increase in loan production, the Cincinnati’s bank’s mortgage portfolio has not grown due to refinancings and other prepays. At the end of the third quarter, the FHLB had $7.7 billion of MPP loans on its balance sheet, compared to $7.8 billion in 2011.
MPP members retain credit risk on loans they sell to the Cincinnati FHLB and they must set up a reserve to cover potential losses. This reserve is returned to sellers based on the performance of the loans.